Blockchain technology, or DLT (distributed ledger technology) as the purists call it, is about to change the world of securities servicing, especially in Australia, which is likely to become the first country with a major stock exchange to shift to the brave new world.
With the help of representation by ACSA (the Australian Custodial Services Association), Australia’s securities services companies have all been working hard to, probably, get in front of their parent companies, which are all big banks, in delivering on the new technology within the next two years.
According to Miles O’Connor, director of direct custody and clearing, at Citi, based in Melbourne, the ASX gave custodians three main choices: to connect via the established SWIFT Net system, using the new ISO 20022 messages, via ASX Net also using the same ISO20022 formatted messages, or connecting to the blockchain by “taking a node”, with implementation scheduled for March/April 2021.
“They are talking a ‘big bang’ approach,” O’Connor says. “It will be all in, everything in.” The ASX will permission the node for participants in a private system. As far as Citi is concerned, he says, it is a challenging deadline “but we’re on track”.
The savings for custodians and their fund manager and super fund clients, however, may not be the 80 per cent initially suggested, he believes. “Initially the ASX was hoping major participants could use the blockchain rather than their own systems, however that’s not going to happen day one. But there are potential savings in different areas,” he says.
Even if participants can replicate their account structures in the node, those account structures can hold only ASX-listed securities, so custodians will have to maintain their other systems.
“In time we are hoping for improved functionality to reduce risk and enhance our services,” O’Connor says. “Asset servicing is where most of the risk is.”
The ASX and ACSA members (amongst others) have been holding many workshops over the past couple of years to try to make sure the transition is a smooth one. If it does go well, it could put the Australian securities services firms onto a world stage as the other major exchanges follow suit.